DEALBOOK; Lawsuit by Ex-Wife of SAC Capital Founder Is Revived on Appeal

By PETER LATTMAN and CAROL VOGEL

Published: April 4, 2013

While the billionaire Steven A. Cohen has come under mounting scrutiny related to insider trading, he had reason to believe that a nasty court battle with his former wife was behind him.

But on Wednesday, a federal appeals court revived the lawsuit that Patricia Cohen, Mr. Cohen’s ex-wife, had filed against him. The development adds another layer of difficulty to his already complicated life, with continuing legal issues and purchases of multimillion-dollar art and real estate.

Ms. Cohen’s lawsuit, filed in 2009, accused her former husband of hiding millions of dollars in assets at the time of their divorce more than 20 years ago. She also claimed that his hedge fund, SAC Capital Advisors, was a “racketeering scheme” that engaged in insider trading and other crimes.

The United States Court of Appeals for the Second Circuit in Manhattan, without addressing the merits of the case, said on Wednesday that the trial court judge improperly dismissed it on the grounds that Ms. Cohen filed her lawsuit after legal deadlines had lapsed.

“As we have said from the outset, these decades-old allegations by Mr. Cohen’s former spouse are patently false and entirely without merit,” said Jonathan Gasthalter, a spokesman for SAC, which is based in Stamford, Conn.

Also on Wednesday, Mr. Cohen and his advisers clarified the timing and amount of Mr. Cohen’s purchase of “Le Rêve,” a painting by Pablo Picasso that he purchased from the casino magnate Stephen A. Wynn.

Reports surfaced last week that Mr. Cohen had bought the Picasso for $155 million. That, coupled with news that Mr. Cohen paid $60 million for an oceanfront estate in the Hamptons, led to speculation that Mr. Cohen’s shopping spree was a statement of confidence that his legal problems were over or an effort to shield assets from the government.

News of the purchases emerged less than two weeks after SAC agreed to pay the government a record $616 million penalty to settle civil insider trading accusations against the fund. Mr. Cohen has not been charged with any wrongdoing, and has said he believes that he has at all times behaved appropriately.

Sandy Heller, Mr. Cohen’s art adviser, said on Wednesday that the sale was completed in early November of last year, a few weeks before the insider trading cases against SAC Capital entered a more serious phase with the indictment of one of his former employees. The purchase price was $150 million, not $155 million, according to people with knowledge of the transaction.

“The timing was bad,” said Mr. Heller, referring to last week’s reports about the Picasso purchase. “We’re correcting the chronology.”

In an interview Wednesday, Mr. Cohen, a collector who also owns works by Jasper Johns and Damien Hirst, said that he had coveted “Le Rêve” for years. “When you stand in front of it, you’re blown away,” Mr. Cohen said.

Mr. Heller said that the deal for the Picasso — one of the most expensive private art sales ever consummated — came together quickly. In late October, Mr. Cohen received a phone call from William Acquavella, the Manhattan art dealer, with news that Mr. Wynn, his longtime client, was finally ready to sell “Le Rêve,” which was hanging in Mr. Acquavella’s gallery on the Upper East Side of Manhattan.

“We were at the gallery the next morning,” Mr. Heller said. “In three minutes we had a deal.”

Mr. Cohen originally had a deal in 2006 to buy the painting, which depicts the artist’s mistress, Marie-Thérèse Walter, asleep in an armchair. He had agreed to pay $135 million, but the sale was canceled after Mr. Wynn, who has a degenerative eye disease, put his elbow through the painting.

A Manhattan conservator, Terence Mann, restored the painting so that with the naked eye it is impossible to tell where Mr. Wynn punctured the Picasso.

“We had to step back, take a deep breath and see how the restoration would turn out,” Mr. Heller said. “This is a painting that has haunted Steve for nearly a decade.”

Mr. Cohen’s battles with his former wife have haunted him for 25 years. Mr. Cohen was 23 when he married Patricia Finke in 1979; they separated in 1988. In the lawsuit filed in 2009, she said that at the time of their divorce in 1990, Mr. Cohen said his assets totaled about $18 million. But she claimed that he lied about his net worth, hiding $5.5 million in assets related to a real estate investment. She sought $300 million in damages.

She also contended in the lawsuit that in 1985, Mr. Cohen made a $20 million profit by trading on a tip about the impending takeover of RCA by General Electric. The lawsuit said that Mr. Cohen told his former wife that it was not illegal to trade on the information. When questioned by the S.E.C. about his trading, Mr. Cohen invoked his Fifth Amendment right against self-incrimination. No charges were ever brought against Mr. Cohen related to that takeover.

The appeals court decision returns the case to a lower-court judge, but the case is not expected to go to trial for some time. Mr. Cohen’s lawyers could file additional motions to dismiss the case on other grounds.

Ms. Cohen’s revived lawsuit adds to her former husband’s legal distractions. On Friday, Michael S. Steinberg became the most senior SAC employee indicted in the government’s investigation of insider trading.

Mr. Steinberg, who has pleaded not guilty, was charged with participating in a ring that illegally traded technology stocks.

This is a more complete version of the story than the one that appeared in print.

PHOTO: The ex-wife of Steven Cohen, of SAC Capital, accuses him of hiding millions of dollars in assets at the time of their divorce. (PHOTOGRAPH BY STEVE MARCUS/REUTERS) (B6)